We build a theoretical model to study whether a minimum wage can be welfare-improving if it is implemented in conjunction with an optimized nonlinear income tax. We consider this issue in a framework where search frictions on the labor market generate unemployment. Workers differ in...

By inverting Saez (2002)'s model of optimal income taxation, we characterize the redistributive preferences of the Irish government between 1987 and 2005. The (marginal) social welfare function revealed by this approach is consistently comparable over time and show great stability despite...

A number of studies have examined the implications of preference interdependence. This paper models utility as depending on other people’s consumption levels and shows that welfare declines with inequality, equilibrium inequality is inefficient, and the optimal intervention leads to a more...

Incomplete information is a commitment device for time consistency problems. In the contextof time consistent labor income taxation privacy can lead to a Pareto superior outcome and increases the effectiveness of public education as a second best policy.

This paper compares education investment in closed and open economies without government and with a benevolent government. The fact that the time consistency problem in taxation can make labor mobility beneficial even if governments are fully benevolent - which is known from other contexts - is...

The analysis provides a new explanation for two widespread problems concerning European unemployment policy: the disappointingly small effect of many past reform measures on unemployment, and the political difficulties in implementing more extensive reform programs. We argue that the heart of...

This paper characterizes optimal income taxation when individuals respond along both the intensive and extensive margins. Individuals are heterogeneous across two dimensions: specifically, their skill and disutility of participation. Preferences over consumption and work effort can differ with...

We propose a canonical model of optimal nonlinear redistributive taxation with matching unemployment. In our model, agents are endowed with different skill levels and labor markets are perfectly segmented by skill. The government only observes negotiated wages. More progressive taxation leads to...

The paper examines the possible effects of introducing a large-scale welfare reform in Sweden, namely, the introduction of comprehensive welfare accounts. Under this policy, individuals make mandatory contributions to accounts, which they can top up with voluntary contributions. In return,...

The current unemployment insurance and employment protection legislation were set up in an economic environment in which relationships between workers and firms were typically long-lasting and stable. The increasing globalisation of the economy and the rapid technological and organisational...